Nuveen Tax-Advantaged Total Return Strategy Fund

N-CSR 1 d888826dncsr.htm NUVEEN TAX-ADVANTAGED TOTAL RETURN STRATEGY FUND Nuveen Tax-Advantaged Total Return Strategy Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES


Investment Company Act file number		811-21471

Nuveen Tax-Advantaged Total Return Strategy Fund

(Exact name of registrant as specified in charter)

Nuveen Investments

333 West Wacker Drive

Chicago, IL 60606

(Address of principal executive offices) (Zip code)

Mark L. Winget

Nuveen Investments

333 West Wacker Drive

Chicago, IL 60606

(Name and address of agent for service)

Registrant’s telephone number, including area code: (312) 917-7700

Date of fiscal year end: December 31

Date of reporting period: December 31, 2020

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507.

ITEM 1. REPORTS TO STOCKHOLDERS.

LOGO

Closed-End Funds

31 December 2020

Nuveen Closed-End Funds


JTA		Nuveen Tax-Advantaged Total Return Strategy Fund

As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will not be sent to you by mail unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.nuveen.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.

You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting the financial intermediary (such as a broker-dealer or bank) through which you hold your Fund shares or, if you are a direct investor, by enrolling at www.nuveen.com/e-reports.

You may elect to receive all future shareholder reports in paper free of charge at any time by contacting your financial intermediary or, if you are a direct investor, by calling 800-257-8787 and selecting option #2 or (ii) by logging into your Investor Center account at www.computershare.com/investor and clicking on “Communication Preferences”. Your election to receive reports in paper will apply to all funds held in your account with your financial intermediary or, if you are a direct investor, to all your directly held Nuveen Funds and any other directly held funds within the same group of related investment companies.

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LOGO

Table of Contents


Chair’s Letter to Shareholders			4

Portfolio Managers’ Comments			5

Fund Leverage			11

Common Share Information			13

Performance Overview and Holding Summaries			16

Report of Independent Registered Public Accounting Firm			18

Portfolio of Investments			19

Statement of Assets and Liabilities			29

Statement of Operations			30

Statement of Changes in Net Assets			31

Statement of Cash Flows			32

Financial Highlights			34

Notes to Financial Statements			36

Shareholder Update			46

Additional Fund Information			60

Glossary of Terms Used in this Report			61

Annual Investment Management Agreement Approval Process			63

Board Members & Officers			67

Chair’s Letter to Shareholders

LOGO

Dear Shareholders,

The rollout of COVID-19 vaccines has kindled the promise of a more normal economy in 2021. Until then, the economic shortfall is expected to be bridged by a combination of fiscal relief measures and easier financial conditions aimed at supporting individuals, businesses and state and local governments. The measures taken to date have already helped the U.S. economy make a significant, although incomplete, turnaround from the depths of a historic recession. In late December 2020, the U.S. government enacted another $900 billion in aid to individuals and businesses, extending some of the programs enacted earlier in the COVID-19 crisis, and more stimulus is anticipated. The U.S. Federal Reserve, along with other central banks around the world, have pledged to keep monetary conditions accommodative for as long as necessary.

While the markets’ longer-term outlook has brightened, we expect intermittent bouts of volatility to continue. COVID-19 cases are still alarmingly high in some regions, and recent economic indicators have shown the dampening effect of renewed restrictions on social and business activity in the latter months of 2020. The pandemic’s course can still be unpredictable, and achieving sufficient inoculation of the population depends on many variables, including logistics, public confidence, real-world efficacy and the emergence of variant virus strains. Additionally, the Biden administration’s full policy agenda and the potential for Congressional gridlock remain to be seen, which could cause investment outlooks to shift. Nevertheless, short-term market fluctuations can provide opportunities to invest in new ideas as well as upgrade existing positioning, within our goal of providing long-term value for our shareholders. For more than 120 years, the careful consideration of risk and reward has guided Nuveen’s focus on delivering long-term results to our shareholders.

The beginning of the year can be an opportune time to assess your portfolio’s resilience and readiness for what may come next. We encourage you to review your time horizon, risk tolerance and investment goals with your financial professional. On behalf of the other members of the Nuveen Fund Board, we look forward to continuing to earn your trust in the months and years ahead.

Sincerely,

LOGO

Terence J. Toth

Chair of the Board

February 22, 2021

Portfolio Managers’ Comments

Nuveen Tax-Advantaged Total Return Strategy Fund (JTA)

The Fund features portfolio management by two affiliates of Nuveen Fund Advisors, LLC, the Fund’s investment adviser, NWQ Investment Management Company, LLC (NWQ) and Nuveen Asset Management, LLC (NAM).

NWQ is the sub-adviser for the Fund’s investments in dividend-paying common and preferred stocks and call options written. James T. Stephenson, CFA, Managing Director of NWQ, Thomas J. Ray, CFA, and Susi Budiman, CFA, FRM manage the NWQ portion of the Fund.

NAM is the sub-adviser for the Fund’s investments in senior corporate loans and other debt instruments. On December 31, 2020, the previous sub-adviser for the Fund’s investments in senior corporate loans and other debt instruments, Symphony Asset Management, LLC (“Symphony”), also an affiliate of the Adviser, was merged with and into NAM (the “Reorganization”). Effective as of the date of the Reorganization, NAM assumed Symphony’s portfolio management responsibilities and, as previously approved by the Fund’s Board of Trustees, the Fund entered into an amended and restated sub-advisory agreement with NAM, the terms of which were substantially identical to the prior sub-advisory agreement with Symphony. The NAM management team for the Fund is led by Scott Caraher.

Here the Fund’s portfolio management team discusses economic and market conditions, key investment strategies and the Fund’s performance for the twelve-month reporting period ended December 31, 2020.

What factors affected the U.S. economy and financial markets during the twelve-month reporting period ended December 31, 2020?

The U.S. economy rebounded more quickly than expected from the deep downturn caused by the COVID-19 crisis and containment measures, but it was not fully recovered by the year’s end. U.S. gross domestic product (GDP) grew 4.0% on an annualized basis in the fourth quarter of 2020 and 33.1% (annualized) in the third quarter, but remained down 3.5% in 2020 overall (from the 2019 annual level to the 2020 annual level) as measured by the Bureau of Economic Analysis “advance” estimate. GDP measures the value of goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes. The economy fell into a deep recession in February 2020 due to the restrictions on business and social activity to mitigate the COVID-19 spread. In the first and second quarters of 2020, annualized GDP shrank 5% and 31.4%, respectively. Government relief programs provided significant aid to individuals and businesses as the economy began reopening in May 2020, which helped the economy bounce back strongly over the second half of the year.

This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio managers as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Fund disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s (S&P), Moody’s Investors Service, Inc. (Moody’s) or Fitch, Inc. (Fitch). This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.

Portfolio Managers’ Comments (continued)

Consumer spending, the largest driver of the economy, remained resilient despite the disruption caused by the health and economic crisis. Consumer spending declined significantly and unemployment rose sharply starting in March 2020. These measures rebounded markedly in the second half of the year, although the momentum slowed toward year end amid a resurgence of coronavirus infections. The Bureau of Labor Statistics said the unemployment rate rose to 6.7% in December 2020 from 3.6% in December 2019. As of December 2020, slightly more than half of the 22 million jobs lost in March and April 2020 have been recovered. The average hourly earnings rate appeared to increase, growing at an annualized rate of 5.1% in December 2020, despite the spike in unemployment. Earnings data was skewed by the concentration of job losses in lower-wage work, which effectively eliminated most of the low-wage data, resulting in an average of mostly higher numbers. The overall trend of inflation remained muted, as decreases in gasoline, apparel and transportation prices offset an increase in food prices. The Bureau of Labor Statistics said the Consumer Price Index (CPI) increased 1.4% over the twelve-month reporting period ended December 31, 2020 before seasonal adjustment.

Prior to the COVID-19 crisis recession, the U.S. Federal Reserve (the Fed) had reduced its benchmark interest rate to support the economy’s slowing growth. The Fed also stopped shrinking its bond portfolio sooner than scheduled and began buying short-term Treasury bills to help money markets operate smoothly and maintain short-term borrowing rates at low levels. As the health and economic crisis deepened, the Fed enacted an array of emergency measures in March 2020 to stabilize the financial system and support the markets, including cutting its main interest rate to near zero, offering lending programs to aid small and large companies and allowing unlimited bond purchases, known as quantitative easing. In August 2020, the Fed announced a change in inflation policy to average inflation targeting. Under this regime, the Fed will tolerate the inflation rate temporarily overshooting the target rate to offset periods of below-target inflation, so that inflation averages a 2% rate over time. Fed officials remained cautious, acknowledging the economy’s improvement but concerned about near-term weakness, and left policy unchanged over the remainder of their meetings in 2020.

In March and April 2020, the U.S. government approved three aid packages. These included $2 trillion allocated across direct payments to Americans, an expansion of unemployment insurance, loans to large and small businesses, funding to hospitals and health agencies and support to state and local governments, and more than $100 billion in funding to health agencies and employers offering paid leave. In December 2020, the government enacted a $900 billion relief package extending some of these programs. With Joe Biden winning the U.S. presidential election in November 2020, more fiscal stimulus is anticipated in 2021.

The COVID-19 crisis rapidly dwarfed all other market concerns starting in late February 2020. Equity and commodity markets sold off and safe-haven assets rallied in March 2020 as China, other countries and then the United States initiated quarantines, restricted travel and shuttered factories and businesses. The potential economic shock was particularly difficult to assess, which amplified market volatility. An ill-timed oil price war between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member Russia, which caused oil prices to plunge in March 2020, exacerbated the market sell-off. At year end, the announcement of high efficacy rates in several COVID-19 vaccine trials, followed by regulatory authorizations and public vaccination drives across Western countries, improved the outlook for 2021 and led to risk-on sentiment in the markets.

Geopolitical uncertainty remained elevated during 2020 in anticipation of the U.S. presidential election in November 2020 and the Brexit transition period set to expire in December 2020. Political risks eased somewhat toward the end of the reporting period, as markets ultimately viewed a Biden administration positively and the European Union (EU) and United Kingdom (U.K.) finalized a trade deal in the final days of the transition period. Although China and the U.S. signed a “phase one” trade deal in January 2020, tensions continued to flare over other trade and technology/security issues, Hong Kong’s sovereignty and the management of the COVID-19 crisis.

For the twelve-month reporting period, the U.S. senior loan market, as measured by Credit Suisse Leverage Loan Index (the Index), generated a return of 2.78%, reflecting a recovery following the unpreceded loss during the first quarter

2020. The Index lost -13.19% during the first three months of the reporting period following the COVID-19 crisis, which resulted in large portions of the economy being shut down, with companies closing either temporarily or permanently and most of the U.S. population under stay-at-home orders during March and April 2020. Additionally, an oil price war between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member Russia, which caused oil prices to plunge in March 2020, exacerbated the market sell-off. Capital markets began to recover following an array of emergency measures enacted by the Fed combined with unprecedented fiscal stimulus. Within senior loans, higher rated (BBB-/BB-) loans were the first to recover, although bifurcation in spread between high quality and lower quality issues (B-/CCC-rated) began to narrow in May 2020, as investors became more comfortable adding risk. Collateralized loan obligations (CLO) formation began to pick up, boosting demand for senior loans. Capital markets continued to recover between July and December 2020, amid continued improvements in economic data, the emergence of multiple vaccines for COVID-19 and a relatively market friendly U.S. elections outcome. Within the asset class, prices advanced across industries and the credit spectrum. Leading the rally were lower rated loans and industries most affected by the COVID-19 crisis, including the energy sector. Additionally, December 2020 marked the first month of inflows for retail senior loan funds since September 2018. Low rates had been keeping investors on the sidelines, but the fourth quarter 2020 rise in Treasury yields led to higher perceived interest-rate risk and renewed appetite for variable-rate assets such as senior loans.

What key strategies were used to manage the Fund during the twelve-month reporting period ended December 31, 2020?

The Fund is designed to seek a high level of after-tax total return consisting primarily of tax-advantaged dividend income and capital appreciation. In pursuit of this objective, the Fund invests a substantial majority of its assets in common and preferred stocks whose dividends qualify for reduced income tax treatment. The Fund also invests a portion of its assets in senior loans to generate additional income and help mitigate the potential net asset value and income volatility of the Fund’s leverage structure due to changes in long-term and short-term interest rates. In an effort to achieve this, the Fund invests at least 60% in common stocks whose dividends may be eligible for favorable income tax treatment. The Fund also invests to a more limited extent in preferred stocks, which can range from a minimum of 5% to a maximum of 15%, that are eligible to pay tax-advantaged dividends, as well as 20% in senior loans and other debt instruments.

NWQ Key Strategies

For the common and preferred equity portion of the Fund’s portfolio, NWQ continued to employ an opportunistic, bottom-up strategy that focused on identifying undervalued companies possessing favorable risk/reward characteristics as well as what it thought were emerging catalysts that could unlock value or improve profitability. These catalysts included management changes, restructuring efforts, recognition of hidden assets and/or a positive change in the underlying fundamentals. NWQ also focused on downside risk management and paid a great deal of attention to a company’s balance sheet and cash flow statement, not just the income statement. NWQ believes that cash flow analysis offers a more objective picture of a company’s financial position than an evaluation based on earnings alone. Within the global equity income strategy managed by NWQ, up to 70% of the Fund’s managed assets can be invested in non-U.S. issues of any currency, including up to 20% in emerging market countries. JTA’s investment objective is to achieve a high level of after-tax total return, consisting primarily of tax-advantaged dividend income and capital appreciation. The Fund seeks to obtain a dividend yield above the MSCI World Value Index (MSCI World Index prior to June 30, 2020) and employs a value based approach in our bottom up analysis. NWQ looks for attractive absolute valuation, positive risk/reward with downside risk management and catalysts that can drive a positive revaluation of companies.

Portfolio Managers’ Comments (continued)

NAM Key Strategies

In the senior loan and other debt portion of the Fund’s portfolio, NAM continues to manage and monitor senior loan market risks. The Fund’s capital remained invested in issuers with strong credit profiles among non-investment grade debt, while offering attractive current income and yield. Fundamentally, NAM feels that many of these companies have stable businesses, good asset coverage for senior debt holders and could perform well in a stable to slow growth environment.

How did the Fund perform during the twelve-month reporting period ended December 31, 2020?

The table in the Performance Overview and Holding Summaries section of this report provides total returns at net asset value (NAV) for the period ended December 31, 2020. The Fund’s total returns on NAV are compared with the performance of a corresponding market index.

For the twelve-month reporting period ended December 31, 2020, the Fund underperformed the S&P 500^®Index and its secondary Blended Benchmark. Effective June 30, 2020, the Blended Benchmark was changed to 72% MSCI World Value Index (Net) 8% ICE BofA Preferred DRD Eligible Preferred Securities Index and 20% Credit Suisse Leverage Loan Index. This change is intended to better reflect NWQ’s investment strategy and is retroactive as of inception date.

NWQ

The equity portion of the Fund’s portfolio, managed by NWQ, detracted from the Fund’s performance on an absolute basis and underperformed the sleeve benchmark, the MSCI World Value Index. Security selection and an overweight in the information technology sector and security selection in the communication services sector were the largest drivers of the sleeve’s performance. This was offset by underperformance owed to security selection in the financials, utilities and industrials sectors. Geographically, performance benefitted from exposures in Japan and Canada. Investments in the United States, Europe (excluding the United Kingdom) and the Middle East detracted from relative returns for the reporting period.

Among the equity portion of the Fund’s portfolio, the top detractors from absolute performance included Delta Air Lines Inc, MGM Growth Properties and AIB Group PLC. Industrials sector holding Delta Air Lines underperformed due to the sharp decline in airline travel owed to the COVID-19 crisis. NWQ eliminated the position on concerns over the company’s increased debt load. Real estate holding MGM Growth Properties saw a massive decline as many casinos across the country shut down operations as the COVID-19 crisis forced the nation to shelter-in-place. Although MGM Growth Properties’ tenant is a high quality casino operator, the potential for lease restructuring and resulting negative impact on net operating income (NOI) quickly resulted in a devaluation of the stock. Given the uncertain duration of the shelter-in-place mandate, NWQ chose to exit the position. Financials holding AIB Group has faced difficulty reducing costs prior to Brexit thereby increasing its overall earnings risk. The equity portion of the Fund’s portfolio no longer holds the position as we found more attractive opportunities elsewhere.

Among the equity portion of the Fund’s portfolio, those top contributors to absolute performance over the reporting period included communication services holdings Nintendo Co. Ltd. Nintendo’s Switch hardware sales continued to perform well given global stay at home orders. Retail store closures have led to a shift from physical game purchases to much higher margin digital game purchases. In addition, industrial holding Deutsche Post AG, a German multi-national package delivery and supply chain management company, exceeded analysts’ expectations. The Deutsche Post Express Division, the courier service which transports documents and goods, experienced increased demand, leading to higher volumes and prices as inventories were restocked. The Deutsche Post Parcel Division showed strength as more customers relied on e-commerce during the COVID-19 crisis stay-at-home orders. Utilization of assets picked up, as well as new lift capacity in the Deutsche Post Express Division hit the market at the right time. The company’s restructuring of parcel operations has led to improved profitability. Lastly, information technology holding Samsung Electronics Co.

contributed to performance. Samsung outperformed due to strong demand for semiconductors as global demand is turning into a shortage. Additionally, the company benefited from an expansion in 5G handset demand. NWQ continues to hold the positions.

The preferred portion of the Fund’s portfolio managed by NWQ, contributed to performance, with bank holdings contributing the most. All industry sectors, with the exception of utilities, positively contributed to absolute performance during the reporting period.

Several holdings within the preferred portion of the Fund’s portfolio detracted from absolute performance, including CenterPoint Energy Inc. Shares fell sharply after the Public Utilities Commission of Texas (PUCT) discussed CenterPoint Energy’s outstanding Houston electric rate case that indicated a lower than expected return on equity. Investors expected that there would be potential for significant equity needs if the final decision is in line with what the PUCT discussed. The Fund no longer holds CenterPoint Energy Inc. In addition, the preferred stock of General Electric Company was another detractor during the reporting period. The company along with many cyclical peers was negatively impacted by the COVID-19 crisis as results declined during the reporting period. NWQ no longer holds the position. Lastly, Capital One Financial Corporation preferred stock detracted from performance. The financials sector struggled and was one of the worst performers during the COVID-19 crisis due to lower business activity and declining interest rates. NWQ continues to hold this position.

Several individual positions within the preferred portion of the Fund’s portfolio contributed to absolute performance, including the structured note of Merrill Lynch International &

SEC Form N-CSR filed